AAR Audit TAG Update May 08, 2008 George A. Jones - CSXT

1 AAR Audit TAG Purpose Our task is to ensure that the AAR Railroad audits being performed on behalf of the Railroads represent the current areas of concern for Car Accountants today. We will identify those areas that we think represent risks for us and ensure that these areas are being audited to our satisfaction.

2 AAR Audit TAG Coverage All Railroads Class 1, 2 and 3 TAG Members Dan Sanders – BNSF Jennifer Goss – TTX Mike Carmicheal – THE BIG UP Paul Suchecki –CPR Mike Partica – CN Robert Sanford - NS James Pinson – Railinc George A. Jones – CSXT Shortline Representative -

3 What does the AAR Audit cover Today? Time and Mileage: — Mileage Master Verification — Mileage Gap Analysis — Claims Processing — Payment Procedures — Car Hire Reporting Procedures — Reclaim Processing — Short Line Railroad Accounting — Miscellaneous Continue all major steps and review detail for sampling techniques and audit improvements

4 What does the AAR Audit cover Today? Class II and Class III audits: Continue all steps and review detail

5 What does the AAR Audit cover Today? Equalization of Mileage of Tank Cars: — Accumulation of loaded and Empty Miles on Tank Cars — Reporting of Loaded and Empty Miles on Tank Cars to Car Owner — Reporting of Loaded and Empty Miles on Tank Cars to AAR Continue all steps and review detail

6 What does the AAR Audit cover Today? Cost and Age of Superstructures Registered in UMLER: Cost and Age Superstructures — Rebuilt Superstructures — Additions, Betterments and Partial Retirements We tried to eliminate these steps but Jim Pinson would not let us.

7 What have we done so Far? We have identified the areas of concern where we wish the AAR Auditors to focus their efforts and now we will review the sampling process used by the Auditors and add any additional areas of concern for audit.

8 What have we done so Far? At the February 13 EAMWC meeting the TAG recommendation that Trailer and Container Audits be eliminated for all audits that begin after March 1, 2008 was approved.

9 What are we are working on now The TAG will review the statistical sampling techniques and the sample sizes used by the AAR Auditors to ensure that we have the level of confidence needed to rely on the findings of the audits. One general theme is that More reliance will be placed on the required use of LCS records. The TAG will add new areas of concern if needed to ensure that the AAR Audit process is complete and up to date. Once these steps are complete, we will sunset the TAG until another AAR Audit review is warranted.

10 Concerns from the TAG Audit Sample methods – Ensure that audits are based on statistically relevant samples.

11 The Goal We will ensure that the test being performed and the sampling techniques used give us the proper assurance that these areas are being covered to our satisfaction.

12 Timeline We plan to meet again after ACACSO and move forward with our review of the sampling techniques. We have no specific timeline to rush the final product. We know we can make some good improvements and plan to include the input of all impacted by our recommendations.

13 Questions? Ideas?